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Rayonier Spinoff Flawed, Investors Claim

(CN) - Rayonier Advanced Materials failed to disclose information about its timber stock and the cost of a corporate separation, causing stock prices to plummet once the truth emerged, according to a federal class action.

Rayonier produces specialty cellulose fibers used to manufacture products such as cigarette filters, liquid crystal displays, impact-resistant plastics and pharmaceuticals.

The company touts its special manufacturing techniques, which it says distinguishes it from "traditional" pulp or paper mills, and its environmentally conscious practices that help protect habitats and promote "sustainable harvesting and procurement."

RYAM is a spinoff of Rayonier's performance fibers division.

On Jan. 27, 2014, Rayonier Inc. announced plans to make RYAM a "tax-free" spinoff company where 100 percent of the new company's shares would be distributed to Rayonier stockholders.

"RYAM was incorporated on Jan. 16, 2014, in Delaware, as a wholly owned subsidiary of Rayonier, to hold the assets and liabilities associated with the performance fibers business in advance of the planned spinoff," according to a 40-page complaint filed in Florida's Middle District.

The spinoff was completed the following June.

"The spinoff resulted in two independent, publicly-traded companies, with the performance fibers business being spun-off to Rayonier shareholders," the complaint states.

RYAM stock, however, dropped by $2.51 per share after Rayonier disclosed in a Nov. 10 announcement that it was forced to issue a restatement of financial results effecting quarterly reports for March 31 and June 30.

Rayonier said, in part, that it mistakenly included "specially designated, environmentally protected, or otherwise restricted" areas in its "merchantable timber inventory."

Stock prices fell by 9.1 percent on the news, dipping from $27.57 per share the day of the announcement to $25.06 on Nov. 11.

Stocks prices fell again on Jan. 28, 2015, when RYAM announced it would be making "massive adjustments to its environmental reserves." This caused a two-day, 5 percent drop from $18.96 per share to $17.98 - a precipitous decline from the class period high of $44.18, according to the complaint.

Lead plaintiff Oklahoma Firefighters Pension & Retirement System says the defendants misled RYAM investors, providing "materially false and misleading" information about the company's financial status.

"In particular ... RYAM improperly recorded and/or failed to record on its publicly issued financial statements material liabilities for environmental remediation and related obligations in violation of generally accepted accounting principles," according to the complaint. "RYAM also failed to provide sufficient disclosure to investors to permit a meaningful evaluation of the true scope and extent of these environmental remediation and related liabilities, which were associated with decades of environmental pollution."

In addition, RYAM falsely stated that demand for one of its products, acetate, was growing when all the while it was decreasing because its Chinese customers had excess inventories, according to the complaint.

Finally, RYAM failed to disclose that the separation from Rayonier cost the company $950 million in new debt.

The pension is suing RYAM and executives Paul Boynton, Frank Ruperto and Benson Woo for fraud under the Securities Exchange Act. Boynton is the former chairman, president and CEO of Rayonier, Inc. Ruperto is Rayonier's former senior vice president of corporate development and strategic planning.

The class seeks damages, pre- and post-judgment interest, and attorneys' fee and costs.

Joseph White and Lester Hooker of Saxena & White, in Boca Raton, Fla. and Jay Eisenhofer and James Sabella of Grant & Eisenhofer, in New York are representing the pension.

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